Credit Suisse Said to Edge Back to CMBS After 2011 Retreat

By Sarah Mulholland -
Feb 1, 2013

Credit Suisse Group AG (CS), the lender
that fired 50 people when it closed its commercial-mortgage bond
unit more than 15 months ago, is approaching borrowers with
potential terms on new loans that would be packaged into
securities.

While Switzerland’s second-biggest bank is seeking to
originate larger loans that can be sold off in one deal, it
isn’t planning to restart the group that bundled multiple
smaller mortgages, according to three people familiar with the
talks who asked not to be identified because plans are
preliminary.

Credit Suisse is poised to return to the commercial-
mortgage bond market after about $10.7 billion in new deals were
offered last month, the most since November 2007, according to
data compiled by Bank of America Corp. Investors are seeking
higher-yielding assets as the Federal Reserve holds its
benchmark interest rate between zero and 0.25 percent into a
fifth year.

UBS AG and Barclays Plc are planning a sale this month,
according to a regulatory filing. Even as Switzerland’s biggest
bank eliminates 10,000 jobs as it cuts back in fixed-income, UBS
has remained committed to CMBS and was the fifth-most active
underwriter of the bonds in the U.S. last year, according to
Commercial Mortgage Alert.

Credit Freeze

The types of deals that Credit Suisse is focused on don’t
expose lenders’ balance sheets to the same risk as so-called
multi-borrower deals. It takes several months to accumulate
loans from many landlords, exposing banks to losses if bond
values decline in the interim.

The segment is reviving after shutting down in 2008 when
credit markets froze. Issuance is forecast to increase by more
than 50 percent to as much as $70 billion in 2013, according to
Credit Suisse analysts led by Roger Lehman in New York. A record
$232 billion of the debt was issued in 2007, Bloomberg data
show.

Europe Crisis

Credit Suisse, which hasn’t issued a commercial-mortgage
bond deal since 2008, shuttered the unit dedicated to
originating commercial property loans in October 2011 as
Europe’s sovereign-debt crisis roiled markets and price declines
eroded profit margins on new sales. The bank kept its U.S.
division that trades the debt.

Zurich-based Credit Suisse helped pioneer the packaging of
loans into commercial-mortgage bonds under Andrew Stone, who
left the bank in 1999 after facing losses when Russia defaulted
on its debt.

Lenders are issuing the securities with the lowest relative
yields since sales revived in 2009. Top-ranked bonds maturing in
10 years are being priced to yield 72 basis points, or 0.72
percentage point, more than the benchmark swap rate, Bloomberg
data show. Investors were getting paid as much as 200 basis
points more than swaps on similar debt sold in August 2011.

The debt returned 9 percent last year, following a 6.2
percent gain in 2011, according to Bank of America Merrill
Lynch’s U.S. Fixed-Rate CMBS index.